Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

15.     Income Taxes

The current and deferred components of income tax expense for the years ended December 31 are as follows:

	2012			2011			2010
	(dollars in thousands)
Current expense:
Federal	$	3,181		$	2,198		$	2,262
State		315			309			528
Total current expense		3,496			2,507			2,790
Deferred (benefit) expense:
Federal		(1,833	)		(961	)		(1,223	)
State		(271	)		8			(323	)
Total deferred benefit		(2,104	)		(953	)		(1,546	)
Provision for income taxes	$	1,392		$	1,554		$	1,244

There were no penalties during 2010, 2011, or 2012. There was approximately $2,000 paid to the Internal Revenue Service for interest during 2012.

Income tax accounts included in other assets/liabilities at December 31 are as follows:

	2012		2011
	(dollars in thousands)
Currently receivable	$	630	$	785
Deferred income tax asset, net		14,551		13,714
Total	$	15,181	$	14,499

Differences between income tax expense at the statutory federal income tax rate and total income tax expense are summarized as follows:

	2012			2011			2010
	(dollars in thousands)
Federal income tax expense at statutory rates	$	6,946		$	6,204		$	5,038
State income tax, net of federal income tax benefit		29			209			135
Insurance income		(396	)		(396	)		(570	)
Effect of tax-exempt interest		(4,628	)		(3,801	)		(2,763	)
Net tax credit		(633	)		(683	)		(622	)
Other		74			21			26
Total	$	1,392		$	1,554		$	1,244
Effective tax rate		6.8	%		8.5	%		8.4	%

The following table sets forth the Company’s gross deferred income tax assets and gross deferred income tax liabilities at December 31:

	2012			2011
	(dollars in thousands)
Deferred income tax assets:
Allowance for loan losses	$	8,103		$	7,056
Deferred compensation		5,643			5,009
Pension and SERP liability		8,621			7,398
Acquisition premium		541			596
Investments writedown		26			26
Deferred gain		11			31
AMT		1,908			1,049
Other		180			75
Nonaccrual interest		151			727
Gross deferred income tax asset		25,184			21,967
Deferred income tax liabilities:
Depreciation		(36	)		(201	)
Limited partnerships		(2,722	)		(2,667	)
Unrealized gain on securities available-for-sale		(7,875	)		(5,385	)
Gross deferred income tax liability		(10,633	)		(8,253	)
Deferred income tax asset net	$	14,551		$	13,714

Based on the Company’s historical and current pre-tax earnings, management believes it is more likely than not that the Company will realize the deferred income tax asset existing at December 31, 2012. Management believes that existing net deductible temporary differences which give rise to the deferred tax asset will reverse during periods in which the Company generates net taxable income. In addition, gross deductible temporary differences are expected to reverse in periods during which offsetting gross taxable temporary differences are expected to reverse. Factors beyond management’s control, such as the general state of the economy and real estate values, can affect future levels of taxable income, and no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences. The Company is in an Alternative Minimum Tax (“AMT”) position. The AMT is carried as a deferred asset and has an indefinite life. The Company has potential tax planning strategies available which support the deferred AMT and, at this time, no valuation allowance is needed.

The Company and its subsidiaries file a consolidated federal tax return. For the tax year beginning in 2009, the Commonwealth of Massachusetts requires a combined state tax return, except for security corporations, which file separate tax returns. The Company is subject to federal examinations for tax years after December 31, 2009, and state examinations for tax years after December 31, 2008.